At 63 He’ll Be Laid Off and Start IRA Withdrawals While Collecting Unemployment. The IRA May Not Cut His Check, but a Pension Can

He’s 63, his layoff date is on the calendar, and he plans to file for unemployment the week after his last day. What’s keeping him up at night is the next step. If he starts taking money out of his IRA to cover the bills, will the state cut his unemployment check?

People in their early 60s often land in this exact spot. Households aged 55 to 69 hold 41% of all U.S. household net worth, according to Federal Reserve data. That means many laid-off workers his age have savings to fall back on, along with real questions about how those savings affect their benefits.

A reader asked NJMoneyHelp a similar question. The planner who answered pointed to New Jersey’s state guidance and said: “You will not need to claim a 401(k) withdrawal on your unemployment benefits, nor claim distributions on an IRA account.”

A Pension Can Shrink His Unemployment Check, but an IRA Usually Won’t

Federal law sets the baseline here. States have to reduce weekly unemployment benefits by the amount of a pension, annuity, or similar periodic payment based on his past work. The federal rule generally applies to pensions from a base-period employer or another employer responsible for the claim. For most pensions, work during the base period must also have increased the worker’s pension rights.

Two details matter. States may limit the reduction to account for money he put in himself (§ 3304(a)(15)(A)(ii)). And benefits can’t be cut for payments that were rolled over and so weren’t taxed (§ 3304(a)(15)(B)).

Put simply, a monthly pension check from the company that laid him off is the payment most likely to reduce his unemployment. His own IRA, or a 401(k) he rolls into one, generally falls outside that rule. Each state writes its own rules within this federal framework, though, so his state’s unemployment agency has the final word.

Both Checks Get Taxed

Unemployment counts as taxable income under 26 U.S.C. § 85(a). He can file Form W-4V with the office that pays his benefits, and it will withhold 10% of each payment. If he skips that step, he may owe estimated tax.

He’s also past 59½, so his IRA withdrawals avoid the 10% additional tax. They still count as taxable income and are taxed at the same rates as a paycheck.

A Sample Bridge Budget Shows a Small, Fixable Gap

Here’s an example. Say his unemployment is $2,400 a month; he takes $2,000 a month from his IRA; 10% is withheld from each; and his bills total $4,500 a month.

Keeping the IRA withdrawal modest and filling the gap with cash keeps his taxable income lower. That pays off when he buys health insurance.

Taking Social Security at 63 Is the Weaker Move

Social Security’s earnings test doesn’t count unemployment benefits or IRA payments as earnings (SSA Handbook § 1812). The test only applies to wages and self-employment income above $24,480 in 2026. So collecting unemployment wouldn’t, by itself, reduce an early Social Security check.

Even so, taking at 63 locks in a permanently smaller check. Federal law also addresses Social Security payments, but the effect on unemployment benefits depends on state rules. New Jersey does not reduce unemployment benefits because someone collects Social Security. Using IRA savings to delay Social Security can increase his future monthly benefit, but the better choice depends on his savings, expenses, health, and expected retirement income. Our coverage of filing at 62 shows how that early reduction plays out over a lifetime.

Health Coverage Is the Cost That Sneaks Up on People

COBRA lets him keep his old employer’s health plan for a limited time. Losing job-based coverage also opens a 60-day window to sign up for a Marketplace plan, where savings are based on income. IRA withdrawals raise the income figure used to set those savings, so every extra dollar he pulls out can reduce his premium help. He should compare both options before his coverage ends.

New unemployment claims remain historically low, although that doesn’t necessarily mean a 63-year-old job seeker will find work quickly. Initial jobless claims were 189,000 in the week ending October 31, which falls in what’s typically considered a very strong range.

Ask This Question Before His First IRA Withdrawal

The most common mistake here is starting the company pension right away because it feels like retirement income. That payment is most likely to cut his unemployment check. Before he moves a dollar, he should call his state unemployment office and ask:

“Will IRA withdrawals, a 401(k) rollover, or a pension from my former employer reduce my weekly benefit in this state, and do I have to report any of them?”

He should get the answer in writing. Then he can roll the 401(k) into an IRA, withdraw only what the budget needs, and wait to start the pension until his unemployment benefits run out.

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